Investors interested in hot new IPOs have not had much to get excited about this year: Besides OpenTable, SolarWinds, and a few others, there haven’t been many IPOs in 2009. Two venture capitalists think that may soon change.
In a ReadWriteWeb article published today, early-stage fund True Ventures team members Jon Callaghan and Phil Black claim the days of frothy IPOs from the late 90s — marketed on the back of companies with little chances of forming profitable business models — are over. (We agree.) But that doesn’t mean a strong supply of tech IPOs won’t return.
“The supply side, though, is where we have had the most problems. Any company that could go public in the bubble days did go public, regardless of merit. Companies that would have normally been an 2003-, 2004-, or 2005-vintage IPO class went public in that surreal period of 1999/2000 or went out of business because they lost all access to capital.”
Calaghan and Black believe that a new wave of IPOs will come from companies formed after the bubble, when entrepreneurs were forced to focus more on building sustainable business, not just Internet businesses. And they were driven to grow their companies over a more traditional five to eight years, versus some companies that went public during the ’99/’00 bubble shortly after they were launched.
What kind of companies would those be? From the article:
- The evolving social network economies of Facebook, Twitter, and WordPress
- Enterprise customers using Amazon Web Services and cloud computing applications
- Breakthrough clean technology processes
Of course, let’s not forget that given the shrinking banking sector, there will be fewer boutique banks willing to chase after smaller deals as they have in the past. (Remember Robertson Stephens and Alex Brown?)
True Ventures’ Calaghan and Black mention these, but do not seem concerned that they will put a damper on new IPO issues. We think it may be a factor. Seasoned venture investor Alan Patricof sums it up nicely in a NYT article earlier this year:
“These names filled the map with a whole slew of firms willing to take you public with a good story, raising $10 million, $5 million or even $2 million, with a total market value of $10 million to $50 million.”
As fewer of these smaller issues are taken to market, it is bound to have an impact on the overall IPO market, as only the most mature, valuable startups with values in excess of $200 million will be taken public.
And let’s face it, very few startups ever reach that kind of valuation.
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